These days, you will normally have to put down a deposit when you buy a property and apply for a mortgage. While “no-deposit” mortgages did exist in the past, they disappeared in the aftermath of the 2008 financial crisis as they were seen as too risky.
Now, however, the Skipton Building Society has launched a “Track Record Mortgage” – a new mortgage product that doesn’t require a deposit, designed for people currently renting a home.
Rent is already high across the country, with Statista reporting that the average monthly rent in the UK was £1,199 as of April 2023. So, Skipton hopes its new 100% mortgage could help people escape expensive rental cycles.
After all, if you’re spending a substantial sum on rent, you may find it challenging to save for a deposit.
100% mortgages could potentially get you on the property ladder quicker, among some other benefits. However, there are some important considerations to keep in mind before you apply for a 100% mortgage, so continue reading to discover what they are.
Skipton’s 100% mortgage allows you to obtain a loan without a deposit or a guarantor
As the name suggests, a 100% mortgage allows you to obtain a loan for a house without a deposit. This means that, essentially, you’re borrowing the entire cost of the property.
A mortgage that requires no deposit could potentially help buyers deal with rising house prices, as the average deposit has also been on the rise.
Indeed, This is Money reports that the average first-time buyer needs a £62,500 deposit to get on the property ladder. Rather than having to save for a deposit, Skipton’s five-year fixed-rate “Track Record” mortgage is designed to help first-time buyers get on the property ladder quicker.
To be eligible for Skipton’s new 100% mortgage, you must be 21 or over, have a good credit history, and you will have to supply proof of at least 12 months of on-time rental payments. Also, Skipton’s 100% mortgage is unique compared to others on the market, as you don’t need a guarantor to be eligible.
It’s worth keeping in mind that the rate offered by Skipton is a five-year fixed rate at 5.49%, slightly higher than the general rate of around 5% that you’ll commonly find on other five-year mortgages with deposit requirements.
Of course, the most apparent benefit of a 100% mortgage is that you won’t need to put down a deposit, meaning you could get on the property ladder faster.
This could be especially advantageous if you’re a first-time buyer, as you could purchase a home sooner rather than having to wait until you’ve saved for a deposit.
100% mortgages typically carry more risk of negative equity
While there are many positives in choosing a 100% mortgage, one of the significant risks associated with this type of arrangement is negative equity. This is when your mortgage debt is higher than the value of your property.
For instance, if you obtained a 100% mortgage to buy a property worth £200,000, but its value fell to £185,000, you’d still owe the lender £200,000 minus anything already paid off. This could cause issues if you need to move house in the future or try to remortgage, and you could end up trapped in your original deal or later stuck on your lender’s standard variable rate (SVR).
You may even find that 100% mortgages come with higher rates and repayments when compared to traditional mortgages with a deposit requirement, so it may be more beneficial to save for a deposit in the long run.
MoneyHelper’s mortgage calculator shows how your repayments could be cheaper if you save for a deposit.
If you secured a traditional mortgage with a 15% deposit on a property worth the average first-time buyer home price of £238,742, you’d need to put down £35,811 for the deposit. In this case, you’d need a mortgage of £202,931 to purchase the property.
This means you’d pay £1,186.31 a month based on the current average interest rate of 5% over a 25-year term capital and interest mortgage.
Conversely, if you chose Skipton’s 100% mortgage at a rate of 5.49%, your monthly repayments would rise to £1,464.66 – that’s £278.35 more each month.
100% mortgages could also be far harder to obtain – since you don’t need to put down a deposit, the criteria for eligibility is much stricter. Lenders will check your credit history and borrowing habits and ask for proof that you’ve made rental payments for the past 12 months.
Also, to be eligible, your mortgage repayments can’t be worth more than the rent you’re already paying.
For instance, if you’re living in a cheaper accommodation to save for your deposit, a 100% mortgage may not suit you since you’ll be limited to a smaller mortgage as your borrowing potential is based on your current rent. Similarly, you won’t be eligible if you’re living with your parents.
Get in touch
If you’re struggling to save for a deposit, we can help you manage your finances so you can get on the property ladder as soon as possible.
Please email enquire@london-money.co.uk or call (0207) 808 4120 to find out how we could help.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Think carefully before securing other debts against your home.